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Revamping the Loyalty Program at OpenTable

I’ve been using OpenTable since 1999 and have cumulatively booked somewhere in north of 600 reservations on the site. It’s a great service that makes booking restaurant reservations easy, convenient and instant. As a registered user of the site, on most reservations you accrue 100 Dining Rewards Points, which are valued at $.01 each and can be redeemed in increments of $20 gift checks that can be used at any OpenTable restaurant. Users who have honored 12 or more reservations as designated as “VIP,” however it’s unclear what, if any, benefits this includes. I have been an OpenTable VIP for years, and I have yet to see a restaurant acknowledge this in any way, or offer me special treatment because of this status. In summary, as the loyalty program currently stands, there isn’t actually anything about the program itself that instills loyalty to the platform.

Stop the 100 Point Rewards

There is an argument to be made that OpenTable should stop offering 100 points per reservation. My instinct is that the $1 incentive has minimal impact on a diner’s decision to book through OpenTable. The platform offers a ton of value to the diner through the ability to book online, read diner reviews and see photos of the food and restaurants—all at no cost. In the movie business Fandango provides an online booking service and charges the customer. Why does OpenTable need to offer a standard 100 points for booking, particularly at this point where it has such a dominant market share? If I want to go to one of my favorite restaurants, I strongly prefer to quickly book a reservation online. I don’t need to be incentivized to do so, as it’s already a big benefit to not have to pick up the phone and get access to real-time availability.

Based on a November 2013 investor presentation, OpenTable seated over 37 million guests in each of the first three quarters of 2013. To make the numbers simple, let’s assume an average of 3.7 guests per reservation (which I’m guessing is actually lower), meaning there were 10 million seated reservations. Now some of these reservations may have been 1,000 point tables or no-point reservations, but it’s seems reasonable to estimate that for each quarter that OpenTable assumes somewhere in the neighborhood $10 million in Dining Rewards Points liability. Quarterly revenues are in the $45-46 million range, meaning that if it cut the standard 100 point offering the bottom line would increase substantially.

Won’t this upset customers? Yes, but probably not anywhere enough to justify the $10 million quarterly savings. Given that 12 annual reservations makes you a VIP, it’s safe to say that most users don’t book that frequently, in which case they are not likely to be too upset about losing out on less than $12/year. The VIPs will certainly be the more vocal among the group as they stand to lose the most, but then again, if they’re eating out that often, even $50 over a year is a small sacrifice for the convenience of online booking.

VIP Benefits

Whenever you have some bad news to deliver, it helps if you can also deliver some good news at the same time. OpenTable could pull this change off and satiate the VIP members by simultaneously enhancing the actual benefits for VIPs. What would power diners value?

Access to choice seatings – could OpenTable get restaurants to hold a few prime time tables that would only be available to VIPs? Why would restaurants do this? Because OpenTable would incentivized them with lower seating fees for these tables. I’m sure a case could also be made that VIP diners have higher average checks, which would make this more attractive to restaurants as well.

Threshold rewards – take a page from the airline programs where there are different tiers of elite customers, and offer some sort of bonus for attaining 25, 50, etc reservations in a calendar year. OpenTable could partner with food and wine brands and potentially get free or deep discounted product for distribution to targeted frequent diners.

Event discounts – there are tons of food and wine related events around the country that are looking for marketing partners. VIP members could opt into receiving access to special discount offers in their area.

Restaurant benefits – allow restaurants to opt in to offering VIPs special treatment, which would appear on the booking page. These could be specials such as a free drink with the order of an entrée, waived corkage, free dessert, and more. It would be at the discretion of the restaurant, but with guidelines from OpenTable. Restaurants can already offer 1,000 point specials of which I’ve seen significant uptake. The same higher average check argument could be made here.

Improved Redemption

The points redemption process could also be improved with a tighter integration with the system. The ideal situation would be one in which you could simply apply any $20 increment towards a bill directly. This could be done all online either through the website or the mobile app before even sitting down. This eliminates the ongoing processing fees for the check, and simultaneously eliminates the problem of having to remember to bring the check with you to dinner. OpenTable already has an accounting relationship with restaurants on a monthly basis, so why not just adjust the monthly balance based on redemptions?

The good news is that the platform itself is dominating—most online restaurant reservations are flowing through OpenTable. There are multiple ways that changes in the Diners Rewards program can ultimately drive more bookings (and profit) for OpenTable.